AUDITING PROCEDURE AND INTERNAL CONTROL SYSTEM

{A case Study of Union Bank of Nigeria Plc}

ABSTRACT

This research study has examined all possible areas of the study was conducted on Auditing procedure and internal control system with reference to Union Bank of Nigeria Plc. However, the areas where the research revolves around are not limited to the scope of the study.  Audition procedure and internal control system is very important in every organization to identify the loopholes and lapses to proffer lasting solution. Data was analyzed using descriptive and chi-square statistics for test of hypotheses.  The five point likert scale will be used analyze the data for the study.  The research questions will be analyzed using the percentage analysis.  For hypotheses testing, chi-square statistics will be used to test the individual hypothesis formulated.  Its also important to posit that internal audit ensure detention of financial fraud and irregularities. In the course of the research work, its discovered that organization with effective internal audit system are more likely to affect fraud than organizations with no such system and function. Adequate internal audit system must be established in the organization to ensure that activities of the organization are carried out effectively and should be provision of adequate training programme to the staff of Lagos State University. Also, qualified and competent staff should be employed in other to ensure efficient operation.

TABLE OF CONTENT

                                                                                        PAGE

TITLE PAGE                                                                                      I

CERTIFICATE                                                                                    II

DEDICATION                                                                                     III

ACKNOWLEDGEMENT                                                                     IV
ABSTRACT                                                                                        V

TABLE OF CONTENT                                                                        VI-VII

CHAPTER ONE: INTRODUCTION

1.1         BACKGROUND TO THE STUDY                                             1

1.2     STATEMENT OF PROBLEMS                                                  3

1.3     OBJECTIVE OF STUDY                                                           5

1.4     RESEARCH QUESTIONS                                                         6

1.5     SIGNIFICANCE OF THE STUDY                                              6

1.6     RESEARCH HYPOTHESES                                                      7

1.7     SCOPE AND LIMITATION OF THE STUDY                              8

1.8     DEFINITION OF TERMS                                                          8

REFERENCE                                                                            10

CHAPTER TWO: REVIEW OF RELATED LITERATURE

2.1     INTRODUCTION                                                                      11

2.2     HISTORICAL DEVELOPMENT OF AUDITING                          11

2.3     HISTORICAL DEVELOPMENT OF INTERNAL AUDITING         13

2.4        DEFINITION/MEANING OF AUDITING AND INTERNAL CONTROL SYSTEM                                                                                    15

2.2     INTERNAL CONTROL SYSTEM                                               17

2.5     PURPOSE OF INTERNAL CONTROL SYSTEM                         19

2.6     OBJECTIVE AND SCOPE OF INTERNAL CONTROL

SYSTEM                                                                                  21

2.7        AN OVERVIEW OF  UNION  BANK OF NIGERIA                      22

2.8        EVALUATION                                                                           25

2.9        VERIFICATION                                                                         26

2.10     COMPLIANCE                                                                          28

2.11     PROFESSIONAL QUALIFICATION AND QUALITIES

AND AUDITOR                                                                        29

2.12     THE POSITION OF THE INTERNAL COMPANY

ORGANIZATION                                                                       31

2.13 AUTHORITY                                                                              31

2.14 RESPONSIBILITY                                                                      32

2.15 INDEPENDENCE                                                                       33

2.16     MEASURING THE IMPORTANT OF AN INTERNAL

AUDITOR                                                                                 33

2.17     INTERNAL AUDIT REPORTS                                                   34

REFERENCE                                                                            36

CHAPTER THREE: RESEARCH METHODOLOGY

3.0        INTRODUCTION                                                                      37

3.1        RESEARCH DESIGN                                                               37

3.2       RE-STATEMENT OF RESEARCH QUESTIONS                        38

3.3     RESEARCH HYPOTHESES                                                      38

3.4     POPULATION OF THE STUDY                                                 39

3.5     SAMPLE AND SAMPLING TECHNIQUES                                 39

3.6     RESEARCH INSTRUMENTS                                                    40

3.7       VALIDATION OF THE INSTRUMENT                                       40

3.8       RELIBILITY OF THE INSTRUMENT                                         40

3.9       METHOD OF DATA ANALYSIS                                                          41

REFERENCE                                                                            42

CHAPTER FOUR: DATA PRESENTATION, ANALYSIS AND INTERPRETATION

4.1 INTRODUCTION                                                                          43

4.2 SUMMARY OF SOCIO-DEMOGRAPHIC

     CHARACTERISTICS                                                                     43

4.3     SECTION B; INTERNAL CONTROL EFFECTIVENESS              60

4.4     TESTING AND ANALYSIS OF HYPOTHESIS                            61

CHAPTER FIVE: SUMMARY, CONCLUSIONS AND RECOMMEDATIONS

5.1        SUMMARY OF FINDINGS                                                        65

5.2     CONCLUSIONS                                                                       66

5.3     RECOMMENDATIONS                                                             67

5.4     SUGGESTION FOR FURTHER STUDIES                                 68

QUESTIONNAIRE                                                                    69

CHAPTER ONE

INTRODUCTION

1.2      BACKGROUND TO THE STUDY

An audit involves the independent examination of an expression person in accordance with the terms of engagement and the observance of statutory regulations and professional requirement (Okolie, 2008).  According to Milichamp (2003) the primary objective of an audit is to produce a report by the auditor of his opinion of the truth and fairness of financial statement, so that any person reading and using them can have belief in them.

Corporate management is a genetic term used to describe the way by which big and established companies with large networks are controlled of the purpose of achieving set goals.  Management is a universally acceptable and necessary concept irrespective of whether or not an organization exists to make profit.  It takes place at all levels in an organization and easy manager performs essentially the same function whether he belongs to top or middle or first line management.  The difference lies in magnitude of the task and the scope and degree of the authority.  American Institute of Certified Public Accountant, Chicago clearing House (1982) defined management as a process by which scarce resources are combined to achieve given objective.  It refers to the people that carry out the activities that are the manager.

Put different by Alter (1996), management may be described as the achievement of organization goals through people and after resources.  The Manager’s job is to combined and co-ordinate human, material and technical resources in the best way to achieve these goals.  Managers may not be directly involved in production; they produce to achieve the organization’s set goals.  Management indeed is a critical ingredient in the five MS.  Management, manpower, machinery, money and materials; which are the basic resources of any organization.

Corporate management has become complex in recent times.  The emphasis on decentralization, increasing use of delegation of authority and even in volume of trade has made the art of management so complex and intriguing that only managers who master the modern scientific method of management can cope with the increasing demands scientific method of management can cope with the increasing demand required by the poison.  To asses the complexity of the art of management, in the current increasing wake of business fraud, embezzlement and the cash squeezes which has crippled many companies because of the Structural Adjustment Programmes (SAP) and its attended foreign exchange and raw materials security.

In order to cope with the current situation and keep their business profitable, management has to look more inwardly, to increase the profitability of the company and to keep the overall activity of the company under control.  This can only be achieve through good effective internal control system of which internal auditing is a major problems and performance of every department in the company.

As representative of top management, the internal auditor is interested in determining whether each branch or department has a clear understanding of its assignment whether it is adequately stated, maintains good records, protects cash and inventories and other assets properly, co-operates with other departments and in general carries out effectively the functions provided for it in the overall plan and organization of the business.

1.2   STATEMENT OF PROBLEMS

The researcher is disturbed by various problems faced by an internal control system in an organization. Some of the problems include:

-              Suppression of information of middle management

-              Delegation of authority

-              Non compliance with laid down accounting procedure

-              Incomplete records

The study considered the needs for a system to ensure the physical assetsof a proper management.

Above all, internal audit department should be created and charges with the responsibility for monitoring, evaluating and reviewing the system of internal control. This department, however, is faced with the problem of awareness and growth. It is only very few staff that know essence and usefulness of this. Department to the organization in which it operates. Some workers hold it behind them.

Failure to institute good control measures that act across the area of business would make it impossible for the company to detect immediately any abnormality. Fraud and errors committed in the course also encourage collusion of few staffs in perpetrating frauds and side tracking normal work procedure.

Effectively, internal audit improve employee skills, morale and knowledge while otherwise could resist in laziness and irresponsibility of staff. Also improper accounting information and reports could lead to poor financial position of an enterprise if there is no adequate financial data.

Since management can only be ensured through delegation of authority, it is only through a good internal audit system that the top management can determine the degree of compliance to delegation authority.

This system of appraisal and reviews needs to make sure that all delegation duties are being carried out effective and also that the policies and procedures of the company are being adhered to. Recession has led to the laying off of workers and this led to job combination. Too much workload by individual workers leads to various forms of errors and mistakes. It is the internal control that will check on errors of recording whether the errors were internal or not.

Finally, this study therefore investigate internal audit: An aid to management decision with a case study of Union Bank of Nigeria (UBN).

1.3   OBJECTIVE OF STUDY

The primary purpose of this study is to:

-              To ensure efficient assets and liabilities management.

-              To under score the importance of internal control as a way of encouraging efficient performance through adherents to lay down organization procedure and accuracy of record.

The basic responsibilities of management are to safeguard assets, to be efficient in operation and also to produce reliable financial records. Management delegates some of these supervisors’ responsibility to the internal audit department and the major function of this department is to help management in performing its duties.

(i)          It helps the management of an organization to achieve some organization goals which include sound and adequate internal system and efficiency in other system of the organization among others.

(ii)        Management is responsible for the establishment of adequate accounting and internal control system.

(iii)      Internal control system is assigned specific responsibility for reviewing the design of the system, monitoring their operation and recommending improvement.

(iv)       It’ helps to identify the problems and prospect of internal system.

1.4   RESEARCH QUESTIONS

In the light of the problems under investigation, the flowering research questions were raised to facilitate empirical enquiry.

1.          Will internal control system give confidence to management on its activities?

2.          Does auditing procedure point out material errors and frauds?

3.          Does internal control system help management to keep proper control of its activities and responsibility?

4.          Will internal procedure make fraud and embezzlement less possible?

5.          Is internal systemkeeping records of transaction and safeguards assets and liabilities?

1.5   SIGNIFICANCE OF THE STUDY

The research work will serve as an individual document for students, business executives, middle level management staff and other people. The result of the study will also be very essential to all government offices that are presently witnessing large-scale misappropriation of funds, fraud and poor accountability.

Although several studies have been conducted on internal audit as an aid to management decision,it is disappointing after a review of literature to report that very little has been achieved in checking fraud in most organizations.

This may be as a result of some of the earlier identified problems. Therefore, the present study serve as an eye opener to some of the top management authorities to correct all the identified problems areas.

1.6   RESEARCH HYPOTHESES

In accordance with the research questions the following hypotheses were postulated and tested.

1.     H0:   Internal control systemdoes not help management keep proper control of its activities and responsibilities.

H1:   Internal control system helps management keep proper control of its activities and responsibilities.

2.     H0:   Internal procedure does not make fraud and embezzlement less possible.

H1:   Internal procedure makes fraud and embezzlement less possible

3.     H0:   Internal control system does not give confidence to management on its activities.

H1:   Internal control system gives confidence to management on its activities.

4.     H0:   Internal system does not keep records of transactions and safeguard assets and liabilities.

H1:   Internal system keeps records of transactions and safeguard assets and liabilities

5.     Ho: Internal procedure does not point out material errors and frauds.

H1:   Internal proceduredoes not point out material errors and frauds.

1.7   SCOPE AND LIMITATION OF THE STUDY

This study only tries to point out the benefits of internal audit to management.

Internal audit is a component of internal control system; but as already stated this study is not going to review the internal control system in general, the study will not concern itself with procedure programmes and the general audit functions, since it does not intend to audit the organization.This scope of this study will not extend to the part of internal control system that involved internal audit.

The study was limited to Union Bank of Nigeria (UBN) within Lagos metropolis and could be generalized to all the Union Bank of Nigeria all over the country.

The major constraint witnessed/encountered in the study is solely on the official releases of Union Bank of Nigeria Annual report of CBN and NDIC deposit insurance corporation journals.

1.8   DEFINITION OF TERMS

The following terms which have been adopted for this study are operationally defined below:

1.          Aid:  to help or something that help

2.          Audit:      the process of verifying accounting records by an accountant (to a third party) to ensure that the accountants, truly represent the state of affairs a financial audit can be described as a systematic examination of the financial statements, records and related operations to determine adherence to generallyaccepted accounting principles management policies and statement.

3.          Auditing: Auditing in the broads form may be defined as a critical investigation to arrive at sound conclusions about accounting for the financial and operating aspect of an economic organization.

4.          Audit Report;  A report replaced by an accountant which specially must be attached to every income statement and balance sheet prepared by members of a registered company.

5.          Control:   the exercise in the present to achieve a plan previously drawn up for the future.

6.          Fraud:Deceit, imposture, a share.

7.          Interest Audit:The ICAN defined it as a review of operations and records sometimes continuously undertaken with a business by specifically assign staff it involves encouragement and monitoring of compliances.

8.          Internal Control:    It is defined as comprising of all plan of organization and all the coordinated methods and measures. Adopted within a business to safeguard its assets, check the accuracy of its accounting data promoted operational efficiency and encourage adherence to prescribed management policies.

9.          Management:  the act of managing, directing or of using anything, skillful treatment of a body of managers.

It is people utilization of available resources within the framework of appropriate legal and moral standards for the maximum achievement of goals and objectives.

REFERENCE

Badmus, S .O and Elegbede, D (2003): Audit and Investigation, Lagos: Bayus Print.

Biggs, W. W (1975) Auditing 15th Edition London: 15th Edition. Macmillan Publishing Company.

Brines, V.C and Cashing, A. (1988): Internal Auditing. Second Edition, New York: Gee and co. Publishing Ltd.

Copper, R.V (1972): Auditing 2nd Edition, New York: Pengium Books Inc.

Holmes, A.W. and Burns, D. C (1988) Auditing Standard and Procedure, 19th Edition: Hants Publications Ltd.

Habbard, T. E (1980): Reading and Case on Auditing. Revised EditionCalifornia: Benjamin/Cummings Publishing Company Inc.

Milchamp, A. H (1998): Auditing 7th Edition London: Leitis Educational Aldine.

Millichamp, A .H (1993): An Institutional, Manual for Accounting Students. ELBS London.

Okolo, J. (1987): The Concept and Practice of Auditing. GreyLagos: Recourse Ltd.

Student Pye Nigeria Ltd, (1998) An Practice. Lagos : SNPL Publication.

---

---